RIT Capital Partners investment trust - update

RIT offers a broad portfolio of complementary investments. It could appeal to investors seeking a balanced and diversified approach.

| 5 min read

RIT Capital Partners is an investment trust with a broad range of assets and a flexible approach. The overall aim is to beat inflation while limiting the ups and downs usually associated with investing in the stock market – a goal that resonates with many investors. Shares make up the core, represented by managed funds and some individual stocks, and this is supplemented by bonds, absolute return funds, investments in private companies and the ability to add downside protection through derivatives.

Shares in the Trust have languished in 2020 to date and are down by some 15%. However, this is primarily a result of changing investor appetite rather than struggling underlying investment performance. Over the first six months of the year, the Trust’s portfolio delivered a small loss of -2.1% June versus -2.8% for its benchmark, the MSCI AC World Index (50% in Sterling, 50% in local currencies), and 2.0% for the fund’s ‘absolute return’ target of RPI plus 3%. Meanwhile, shares have moved from a significant premium to a discount*. At one point this touched -25% during the stressed market conditions in March but is now a more modest -5%.

Table: Year to date and discrete annual performance of RIT Capital versus its sector

Year to date and discrete annual performance of RIT Capital versus its sector
Past performance is not a reliable indicator of future returns. Figures are shown on a share price % total return basis, bid to bid price with net income reinvested; Source: FE Analytics, 2020 YTD data: 31/12/2019 to 30/07/2020.

During a volatile six months for markets, the managers maintained their cautious approach with exposure to listed shares averaging 42%. The bulk of this component is in funds chosen by the managers with direct equities accounting for less than a quarter of equity exposure. Areas within this that performed well were China, biotech, and technology, while certain more economically sensitive areas suffered.

One of the main differentiating factors of RIT Capital is the exposure to selected private equity investments, which are made directly, alongside established partners or through specialist third-party funds. RIT has access to a broad range of private equity investments through a well-established network. These sorts of investments (currently representing around a quarter of the portfolio, with two-thirds in funds and one third in direct holdings) are ordinarily out of reach for private investors but can provide a rich source of returns as well as important diversification.

The private equity investments were relatively well insulated during the volatility, one contributing factor being exposure to technology-related businesses. The largest direct position, Acorn, also saw a partial realisation earlier in the year and the flotation of its investment in coffee and tea group JDE Peet’s in June. Most of the private equity portfolio is invested in mature, cash-generative holdings, reflecting RIT’s strategy since 2012 to focus on selected direct investments and to reduce new commitments to third party funds, other than in exceptional circumstances. Other areas held for diversification, bonds and absolute return investments, account for a further quarter of the portfolio and helped it whether some of the volatility encountered in the first quarter of the year. A small exposure to gold and gold-related assets was also positive.

Looking forward, the managers are somewhat sceptical of current buoyant stock markets, believing investors have little 'margin of safety'. To justify the current backdrop of record debt levels and valuations they suggest there needs to be a sustained period of economic growth, but that there are reasons to doubt this will occur, including reluctance on the part of many companies to spend, uncertainty around inflation and rising geopolitical and societal tensions. They expect volatility over the rest of the year and are adopting a cautious stance and a selective approach to new investments.

Our view

RIT Capital has an exceptional long-term track record through a differentiated and unconstrained approach seeking to deliver long-term growth while preserving capital. These twin aims fit well with the needs of many private investors and we continue to believe the Trust maintains an edge with its access to specialist managers and private equity deals. It remains part of our Direct Investment Service Preferred List of preferred funds for new investment.

The value of the portfolio has been typically resilient this year so far, providing some insulation from falling markets, whilst participating in the upside. However, the share price has been far more volatile than NAV, which is an inevitable extra risk of using investment trusts compared to funds. The current discount looks quite appealing for investors seeking a balanced approach through a diverse portfolio, though there are no guarantees it will narrow further.

*Unlike open-ended funds, investment trust share prices are determined by supply and demand so they can trade at less than the sum of its parts (a discount) or more than this (a premium).

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

RIT Capital Partners investment trust - update

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